Earning Rs. 70-80k per month on a capital of Rs. 5 lakh through share trading is a return of 14-16% per month, which is astronomically high and let’s admit impossible unless you are smoking something really weird. But let’s break this down:
- High Risk: To achieve such returns consistently each month, one would be taking on significant risks. The stock market is unpredictable in the short term, and aiming for such high returns would likely involve highly speculative strategies.
- Statistics Point to Trading Losses: As per a recent SEBI study dated January 25, 2023, it was found that 9 out of 10 individual traders in the equity Futures and Options Segment incurred net losses. On average, these loss-makers registered a net trading loss of around ₹50,000. What’s more, they also expended an additional 28% of net trading losses as transaction costs. Those who did make profits saw between 15% to 50% of their profits eaten up by transaction costs. This clearly highlights the challenges and pitfalls of trading, especially in the derivatives segment.
- The Cost of Trading: Apart from potential losses, frequent trading involves higher transaction costs, which can eat into any profits you might earn. As the study mentions, even the profit-makers end up giving away a significant chunk of their gains as transaction costs.
- Why Long-term Investing is a Better Approach: Instead of chasing short-term gains, consider the power of compounding by investing in quality stocks for the long term. Using the Roots & Wings philosophy, focus on companies with strong fundamentals (Roots) and promising growth prospects (Wings). History has shown that long-term investors, who invest in quality stocks and hold onto them, tend to achieve more consistent and reliable returns.
To sum up, while it’s theoretically possible to achieve the mentioned returns, the risks associated with trading are substantial. It’s advisable to approach the stock market with a long-term investment perspective. And if you need guidance on how to navigate the complexities of the market, consider consulting with expert investment advisory services like Jama Wealth.
